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India's sugar production likely to go up 12% to 30.5 MT in SY2021: ICRA

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The domestic sugar production is likely to go up by 12 per cent to 30.5 million tonnes (MT) during the sugar year 2021, beginning October, due to availability of sugarcane in Maharashtra and Karnataka, according to a report.

The sugar production in India is likely to increase by 12.1 percent to 30.5MT YoY in sugar year (SY) 2021, after adjusting for the impact of the diversion of B-heavy molasses and sugarcane juice for ethanol manufacture, ICRA said in a report.

The production is likely to increase in SY2021, because of higher production in Maharashtra and Karnataka, which was adversely impacted in the previous year due to drought.

In addition, heavy rainfall and waterlogging during the last year (August – September 2019) adversely impacted the sugarcane crop in a few regions of Maharashtra and North Karnataka for SY2020, the report said.

ICRA expects the closing stocks for SY2020 at around 11.0 - 11.5MT after considering the consumption of 25MT (decline of 3.8 percent YoY) and exports of 5-5.5MT.

This along with higher sugar production for SY2021 is likely to result in domestic sugar availability of around 42MT.

In the light of the continuing sugar surplus scenario in the domestic market, continued government support would be critical for industry's profitability, it added.

“This increase in production is majorly driven by the increase in cane availability in Maharashtra and Karnataka in SY2021. The domestic sugar consumption was adversely impacted by the nationwide lockdown owing to COVID-19 pandemic due to loss of demand on account either closure or limited operations of several beverage/food manufacturing units during April-May 2020," ICRA Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.

He said, with the easing of lockdown rules, the consumption is back to pre-COVID levels in June-July 2020.

"While we expect a decline in the sugar consumption in SY2020, the same is likely to go back to 26MT levels in SY2021. The closing stocks are expected at around 10.5-11.0MT for the SY2021 season, which is higher when compared to the normative sugar stock levels," he added.

Without considering the impact of the diversion of B-heavy molasses and sugarcane juice for ethanol manufacture in SY2020, the production is expected to be around 32MT, the report stated.

In Maharashtra, production is expected to increase by 64 percent YoY at 10.1MT and in Karnataka, by 26 percent YoY to around 4.3MT in SY2021.

In UP, production is likely to decline by 3 percent YoY to 12.3MT, the report added.

In SY2020, the production was higher by around 0.5-0.6MT than anticipated because the cane which was generally used by the local gur and khandsari manufacturers, got diverted to sugar mills with the former's operations prematurely shut due to the lockdown, it said.

Meanwhile, the report said that the exports were on the lower side during the lockdown period given the modest port operations owing to the logistics issues and labour shortage, but the pace picked up in May-June 2020.

ICRA expects exports of around 5-5.5MT for SY2020.

Assuming the government continues support for exports for SY2021, considering the surplus scenario in the domestic market, exports are likely to be similar to the SY2020 figures, it added.

The sugar prices moderated closer to MSP ( minimum selling price) levels of Rs 31 per kg in March – May during lockdown period and then picked up to Rs 32-32.5 per kg in June.

The pick-up in consumption and pace of sugar exports is likely to support the sugar prices in the near term.

However, given the sugar surplus scenario, any significant increase in the sugar prices is ruled out, the ICRA report added.